A monopolistically competitive firm maximizes profits or minimizes losses in the short run by

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm can earn positive economic profits, break even or incur losses. To maximize profits or minimize losses, the firm should produce where marginal revenue (MR) equals marginal cost (MC). This is because at any other output level, the firm could increase profits by producing more if MR > MC or reduce losses by producing less if MR < MC. Therefore, the correct answer is C - producing at the output level where MR equals MC. Setting price equal to marginal cost (A) would lead to losses in the long run, while producing at the output level where ATC is minimized (B) would only apply in the long run when the firm can adjust its scale of production.

A Monopolistically Competitive Firm Maximizes Profits or Minimizes Losses in the Short